PACRA Maintains Entity Ratings of Pak-Libya Holding Company (Pvt.) Limited
Development Financial institutions (DFIs) largely operate on turf common to commercial banks. Limited depth in participation towards development of long gestation projects, low funding base, and high competition becomes their key challenges.
Joint Venture Financial Institutions are DFIs jointly established by the two sovereigns with primary objective of identifying and nurturing multiple development initiatives. Their ratings are mainly characterized by sovereign ownership, adequate standards of governance, and relatively conservative risk appetite.
The ratings of Pak Libya reflect organic growth of the company and minimum capital requirement gap gradually being abridged. Benefiting from the increasing credit off take in the country, lending side of Pak Libya picked up pace along with sustaining the quality. Treasury operations continue to strengthen the financial position of the company. Investment in government securities dominates the book with limited exposure in equity market through investments in diversified blue chip stocks. Operational profitability declined in CY17. The management continues to cautiously expand its existing loan book through corporate finance activities and further penetrating in SME segment. The management expects to capitalize on new avenues led by economic activities.
Last year, a Special Purpose Vehicle named Kamoke Powergen (Pvt.) Limited (KPL) was incorporated, to apply for power generation license from NEPRA so as to increase viability of KEL – Pak Libya's largest nonperforming exposure – a strategic investment on the books. However, the exposure was completely provided for. Although the management is actively pursuing it, with improving energy dynamics, this may be challenging. Company’s sovereign parentage have not translated fully in meeting its regulatory capital requirement deficiency as of date. The approval for further extension in compliance with capital requirement remains dependent upon commitment from sponsoring Governments.
The ratings have a "negative outlook", signifying the need to comply with regulatory minimum capital requirement (shortfall of PKR 1.599bln as at end-Dec'17 and PKR 1.646bln as at end-Mar'18). Consistent efforts by the management to stabilize revenue stream and add further diversity to operations would remain critical. Meanwhile, sustaining asset quality would help maintain the ratings. Timely sell-off of KEL is important for the ratings.
Pak Libya Holding Company (Pvt.) Limited (Pak Libya) was established as a joint stock company in October 1978. The Company is equally owned by the Government of Islamic Republic of Pakistan, represented through State Bank of Pakistan (SBP), and the Government of Libya, represented through Libyan Foreign Investment Company (LAFICO), implying strong sovereign support. Pak Libya has three core avenues for asset building, along with non-fund based activities.